Yes, you read that headline right. There’s something unique happening between two of the largest exchange-traded funds tracking U.S. semiconductor stocks: One fund is sharply underperforming the other, despite several recent years of relatively in-line performance.
The VanEck Semiconductor ETF (SMH) is up about 42% in 2024, while the iShares Semiconductor ETF (SOXX) has lagged with a gain of 15%. This gap of more than 26 percentage points is the largest going back more than a decade, according to a CNBC analysis.
The massive disparity in performance matters because it means the VanEck ETF is tracking for larger gains than both the broad S&P 500 and technology-heavy Nasdaq Composite. The iShares fund, on the other hand, is poised to underperform both of the major indexes despite its coverage of a sector that has been heralded for big advances and a connection to artificial intelligence.
Roxanna Islam, head of sector and industry research at financial data firm VettaFi, attributes the disparity to how each ETF weighs AI titan Nvidia. “They’re pretty similar on the surface,” Islam said. “Why is SMH doing so much better than SOXX? I mean, the answer is Nvidia.”
The VanEck SMH ETF tracks the 25 largest U.S. semiconductor stocks, while the iShares SOXX fund follows 30. The former allocates much larger weightings to its biggest names, including Nvidia, which makes up nearly 20% of the SMH fund. In contrast, Nvidia accounts for less than 8% of the SOXX fund, according to Morningstar.
Islam notes that the deviation in weighting affects broader performance when stocks like Nvidia surge, as they have this year. While Nvidia is the top performer in the Dow Jones Industrial Average and the third-biggest gainer in the S&P 500 this year, its smaller weighting in the SOXX ETF means the iShares fund is not benefiting as much from its strong performance.
Some investors may be left scratching their heads about the differences between the two funds, which are among the most popular tracking the semiconductor sector. Islam cautions against abandoning the iShares product after this year’s run, noting that the fund’s average-weighted market cap is smaller and offers more diversified exposure to the sector. She expects the performance gap to narrow in 2025 and recommends investors consider both funds’ pros and cons.